HOME BANCORP, INC. - Quarter Report: 2015 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2015

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-34190

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)

Louisiana

71-1051785

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)


503 Kaliste Saloom Road, Lafayette, Louisiana		70508
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (337) 237-1960

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

At August 3, 2015, the registrant had 7,233,509 shares of common stock, $0.01 par value, outstanding.

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS


			Page

PART I

Item 1.	Financial Statements (unaudited)

		Consolidated Statements of Financial Condition		1

		Consolidated Statements of Income		2

		Consolidated Statements of Comprehensive Income		3

		Consolidated Statements of Changes in Shareholders’ Equity		4

		Consolidated Statements of Cash Flows		5

		Notes to Unaudited Consolidated Financial Statements		6

Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations			26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			38

Item 4.	Controls and Procedures			38

PART II

Item 1.	Legal Proceedings			39

Item 1A.	Risk Factors			39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			39

Item 3.	Defaults Upon Senior Securities			39

Item 4.	Mine Safety Disclosures			39

Item 5.	Other Information			39

Item 6.	Exhibits			40

SIGNATURES				41

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	(Unaudited)			(Audited)
	June 30, 2015			December 31, 2014
Assets
Cash and cash equivalents	$	30,227,762		$	29,077,907
Interest-bearing deposits in banks		5,526,000			5,526,000
Investment securities available for sale, at fair value		178,078,713			174,800,516
Investment securities held to maturity (fair values of $14,542,696 and $11,889,335, respectively)		14,489,250			11,705,470
Mortgage loans held for sale		6,696,133			4,516,835
Loans, net of unearned income		915,552,159			908,967,871
Allowance for loan losses		(8,465,718	)		(7,759,500	)

Total loans, net of unearned income and allowance for loan losses		907,086,441			901,208,371

Office properties and equipment, net		36,623,001			37,964,714
Cash surrender value of bank-owned life insurance		19,419,577			19,163,110
Accrued interest receivable and other assets		36,659,756			37,451,687

Total Assets	$	1,234,806,633		$	1,221,414,610


Liabilities
Deposits:
Noninterest-bearing	$	266,204,295		$	267,660,145
Interest-bearing		764,767,559			725,912,448

Total deposits		1,030,971,854			993,572,593
Short-term Federal Home Loan Bank (FHLB) advances		—			31,000,000
Long-term Federal Home Loan Bank (FHLB) advances		19,000,000			16,500,000
Securities sold under repurchase agreements		20,036,905			20,370,892
Accrued interest payable and other liabilities		5,895,560			5,827,369

Total Liabilities		1,075,904,319			1,067,270,854


Shareholders’ Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value - 40,000,000 shares authorized; 7,218,009 and 7,123,442 issued and outstanding, respectively		72,181			90,088
Additional paid-in capital		76,153,953			93,332,108
Treasury stock at cost - 0 and 1,885,303 shares, respectively ⁽¹⁾		—			(28,572,891	)
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(4,731,210	)		(4,909,750	)
Recognition and Retention Plan (RRP)		(201,396	)		(202,590	)
Retained earnings		86,489,766			93,101,915
Accumulated other comprehensive income		1,119,020			1,304,876

Total Shareholders’ Equity		158,902,314			154,143,756

Total Liabilities and Shareholders’ Equity	$	1,234,806,633		$	1,221,414,610

⁽¹⁾	See Note 1 for details on the Louisiana Business Corporation Act.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Interest Income
Loans, including fees	$	12,620,586	$	12,922,738	$	24,981,549	$	24,407,184
Investment securities		902,115		970,319		1,812,236		2,021,166
Other investments and deposits		65,319		46,522		99,071		77,680

Total interest income		13,588,020		13,939,579		26,892,856		26,506,030


Interest Expense
Deposits		700,657		704,051		1,385,636		1,326,616
Securities sold under repurchase agreement		18,634		18,634		37,063		35,309
Short-term FHLB advances		63		33,581		6,133		69,242
Long-term FHLB advances		103,825		81,689		207,060		162,239

Total interest expense		823,179		837,955		1,635,892		1,593,406

Net interest income		12,764,841		13,101,624		25,256,964		24,912,624
Provision for loan losses		294,138		810,953		832,625		955,969

Net interest income after provision for loan losses		12,470,703		12,290,671		24,424,339		23,956,655


Noninterest Income
Service fees and charges		954,545		976,977		1,846,664		1,773,070
Bank card fees		637,688		569,132		1,203,272		1,025,116
Gain on sale of loans, net		267,839		438,604		641,012		600,465
Income from bank-owned life insurance		124,108		115,193		256,467		225,834
Gain on sale of securities, net		—		—		—		1,826
Other income		54,641		152,240		170,089		281,814

Total noninterest income		2,038,821		2,252,146		4,117,504		3,908,125


Noninterest Expense
Compensation and benefits		6,062,625		5,712,343		11,823,412		12,507,150
Occupancy		1,166,929		1,191,230		2,338,210		2,205,560
Marketing and advertising		112,654		244,218		222,982		451,459
Data processing and communication		915,140		1,060,231		1,858,472		2,432,054
Professional services		475,235		228,392		713,409		715,502
Forms, printing and supplies		133,028		201,299		277,838		363,220
Franchise and shares tax		147,272		184,385		294,544		368,771
Regulatory fees		296,942		255,662		577,409		484,039
Foreclosed assets, net		259,788		319,251		495,570		681,136
Other expenses		658,715		973,156		1,345,568		1,418,323

Total noninterest expense		10,228,328		10,370,167		19,947,414		21,627,214

Income before income tax expense		4,281,196		4,172,650		8,594,429		6,237,566
Income tax expense		1,441,359		1,420,025		2,906,828		2,051,485

Net Income	$	2,839,837	$	2,752,625	$	5,687,601	$	4,186,081


Earnings per share:
Basic	$	0.42	$	0.42	$	0.85	$	0.64

Diluted	$	0.41	$	0.40	$	0.82	$	0.61


Cash dividends declared per common share	$	0.07	$	—	$	0.14	$	—

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014

Net Income	$	2,839,837		$	2,752,625		$	5,687,601		$	4,186,081


Other Comprehensive Income
Unrealized gain (loss) on investment securities	$	(902,402	)	$	778,188		$	(285,933	)	$	1,524,726
Reclassification adjustment for gains included in net income		—			—			—			(1,826	)
Tax effect ⁽¹⁾		315,841			(272,366	)		100,077			(533,015	)

Other comprehensive (loss) income, net of taxes	$	(586,561	)	$	505,822		$	(185,856	)	$	989,885


Comprehensive Income	$	2,253,276		$	3,258,447		$	5,501,745		$	5,175,966

(1)

The tax effect for the three and six months ended June 30, 2015 on the change in unrealized gains (losses) on investment securities was $315,841 and $100,077, respectively, compared to $272,366 and $533,654, respectively, for the three and six months ended June 30, 2014. The tax effect for the three and six months ended June 30, 2014 on the reclassification adjustment for gains included in net income had a tax effect of $0 and $639, respectively.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


	Common Stock			Additional Paid-in Capital			Treasury Stock			Unallocated Common Stock Held by ESOP			Unallocated Common Stock Held by RRP			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance, December 31, 2013⁽¹⁾	$	89,585		$	92,192,410		$	(28,011,398	)	$	(5,266,830	)	$	(1,018,497	)	$	83,729,144		$	195,115		$	141,909,529
Net income																	4,186,081						4,186,081
Other comprehensive income																				989,885			989,885
Treasury stock acquired at cost, 20,694 shares								(437,041	)														(437,041	)
Exercise of stock options		186			213,356																		213,542
RRP shares released for allocation					(549,091	)								773,139									224,048
ESOP shares released for allocation					187,326						178,540												365,866
Share-based compensation cost					623,830																		623,830

Balance, June 30, 2014	$	89,771		$	92,667,831		$	(28,448,439	)	$	(5,088,290	)	$	(245,358	)	$	87,915,225		$	1,185,000		$	148,075,740


Balance, December 31, 2014⁽¹⁾	$	90,088		$	93,332,108		$	(28,572,891	)	$	(4,909,750	)	$	(202,590	)	$	93,101,915		$	1,304,876		$	154,143,756
Net income																	5,687,601						5,687,601
Other comprehensive loss																				(185,856	)		(185,856	)
Purchase of Company’s common stock at cost, 49,200 shares								(2,909,083	)														(2,909,083	)
Reclassification of treasury stock per Louisiana law⁽²⁾		(20,187	)		(20,166,773	)		31,481,974									(11,295,014	)					—
Cash dividends declared, $0.14 per share																	(1,004,736	)					(1,004,736	)
Exercise of stock options		2,280			2,621,783																		2,624,063
RRP shares released for allocation					(969	)								1,194									225
ESOP shares released for allocation					287,531						178,540												466,071
Share-based compensation cost					80,273																		80,273

Balance, June 30, 2015	$	72,181		$	76,153,953		$	—		$	(4,731,210	)	$	(201,396	)	$	86,489,766		$	1,119,020		$	158,902,314

⁽¹⁾	Balances as of December 31, 2013 and December 31, 2014 are audited.

⁽²⁾	See Note 1 for details on the Louisiana Business Corporation Act.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	For the Six Months Ended June 30,
	2015			2014
Cash flows from operating activities, net of effects of acquisition in 2014:
Net income	$	5,687,601		$	4,186,081
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		832,625			955,969
Depreciation		901,831			812,261
Amortization of purchase accounting valuations and intangibles		2,144,471			4,890,508
Net amortization of mortgage servicing asset		62,540			80,035
Federal Home Loan Bank stock dividends		(5,900	)		(9,100	)
Net amortization of premium on investments		744,039			614,323
Gain on sale of investment securities, net		—			(1,826	)
Gain on loans sold, net		(641,012	)		(600,465	)
Proceeds, including principal payments, from loans held for sale		62,085,277			49,254,922
Originations of loans held for sale		(63,623,563	)		(50,757,291	)
Non-cash compensation		475,107			989,696
Deferred income tax benefit		(471,026	)		(123,073	)
Decrease in interest receivable and other assets		622,992			5,310,368
Increase in cash surrender value of bank-owned life insurance		(256,467	)		(225,834	)
Decrease (increase) in accrued interest payable and other liabilities		139,428			(4,304,739	)

Net cash provided by operating activities		8,697,943			11,071,835


Cash flows from investing activities, net of effects of acquisition in 2014:
Purchases of securities available for sale		(18,713,313	)		(13,511,970	)
Purchases of securities held to maturity		(2,927,988	)		(2,150,774	)
Proceeds from maturities, prepayments and calls on securities available for sale		14,549,353			16,038,337
Proceeds from maturities, prepayments and calls on securities held to maturity		—			466,470
Proceeds from sales of securities available for sale		—			66,904,999
Net increase in loans		(11,476,848	)		(47,603,668	)
Reimbursement from FDIC for covered assets		363,406			342,928
Decrease in certificates of deposit in other institutions		—			992,000
Proceeds from sale of repossessed assets		1,592,531			2,998,116
Purchases of office properties and equipment		(398,008	)		(2,009,409	)
Proceeds from sale of properties and equipment		704,276			—
Net cash disbursed in business combination		—			(22,995,649	)
Purchases of Federal Home Loan Bank stock		(793,300	)		(2,582,100	)
Proceeds from redemption of Federal Home Loan Bank stock		1,970,200			2,011,400

Net cash used in investing activities		(15,129,691	)		(1,099,320	)


Cash flows from financing activities, net of effects of acquisition in 2014:
Increase in deposits		37,371,361			23,902,051
Decrease in Federal Home Loan Bank advances		(28,500,000	)		(3,649,000	)
Decrease in securities sold under repurchase agreements		—			(6,314,675	)
Purchase of the Company’s common stock		(2,909,083	)		(437,041	)
Proceeds from exercise of stock options		2,624,062			213,542
Payment of dividends on common stock		(1,004,737	)		—

Net cash provided by financing activities		7,581,603			13,714,877


Net change in cash and cash equivalents		1,149,855			23,687,392
Cash and cash equivalents at beginning of year		29,077,907			32,638,900

Cash and cash equivalents at end of period	$	30,227,762		$	56,326,292

The accompanying Notes are an integral part of these Consolidated Financial Statements.

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Home Bancorp, Inc. (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, other comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month and six-month periods ended June 30, 2015 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2014.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, other comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

Louisiana Business Corporation Act

Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation Act. Provisions of the Louisiana Business Corporation Act eliminate the concept of treasury stock and provide that shares reacquired by a company are to be treated as authorized unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. The Company’s Consolidated Financial Statements reflect this change. The cost of shares purchased by the Company has been allocated to common stock, additional paid-in capital and retained earnings.

2. Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. Management will be required to make the evaluation and disclose for both annual and interim reporting periods. The ASU is effective for interim and annual periods after December 15, 2016. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which eliminates the deferral of certain investments in variable interest entities. ASU 2015-02 will allow companies with interests in certain investment funds to follow preceding consolidation guidance and make changes to the variable interest model and the voting model. The ASU is effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

3. Acquisition Activity

On June 18, 2015, the Company entered into a definitive agreement providing for the merger of Louisiana Bancorp Inc., the holding company of the 105-year-old Bank of New Orleans, with and into the Company and the subsequent merger of Bank of New Orleans with and into the Bank. Under the terms of the agreement, shareholders of Louisiana Bancorp will receive $24.25 per share in cash upon completion of the merger. The merger, which is expected to be completed in the fourth quarter of 2015, is subject to Louisiana Bancorp shareholder approval, regulatory approvals and other customary conditions. The Company incurred $256,000 in pre-tax merger-related expenses during the second quarter of 2015.

4. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of June 30, 2015 and December 31, 2014 is as follows.


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
June 30, 2015					Less Than 1 Year		Over 1 Year
Available for sale:
U.S. agency mortgage-backed	$	125,853	$	1,734	$	192	$	434	$	126,961
Non-U.S. agency mortgage-backed		6,988		56		13		38		6,993
Municipal bonds		23,083		510		55		4		23,534
U.S. government agency		20,433		196		—		38		20,591

Total available for sale	$	176,357	$	2,496	$	260	$	514	$	178,079


Held to maturity:
Municipal bonds	$	14,489	$	144	$	86	$	4	$	14,543


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses				Fair Value
December 31, 2014					Less Than 1 Year		Over 1 Year
Available for sale:
U.S. agency mortgage-backed	$	120,009	$	1,984	$	10	$	485	$	121,498
Non-U.S. agency mortgage-backed		7,757		61		28		26		7,764
Municipal bonds		24,388		561		2		51		24,896
U.S. government agency		20,639		190		—		186		20,643

Total available for sale	$	172,793	$	2,796	$	40	$	748	$	174,801


Held to maturity:
Municipal bonds	$	11,705	$	202	$	3	$	15	$	11,889

The estimated fair value and amortized cost by maturity of the Company’s investment securities as of June 30, 2015 are shown in the following tables. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its contractual maturity because of prepayments or the exercise of call options. Accordingly, actual maturities may differ from contractual maturities.


*(dollars in thousands)*	One Year or Less		One Year to Five Years		Five to Ten Years		Over Ten Years		Total
Fair Value
Securities available for sale:
U.S. agency mortgage-backed	$	—	$	100	$	28,324	$	98,537	$	126,961
Non-U.S. agency mortgage-backed		—		—		—		6,993		6,993
Municipal bonds		911		7,797		12,157		2,669		23,534
U.S. government agency		—		16,137		—		4,454		20,591

Total available for sale	$	911	$	24,034	$	40,481	$	112,653	$	178,079


Securities held to maturity:
Municipal bonds	$	648	$	—	$	9,351	$	4,544	$	14,543

Total investment securities	$	1,559	$	24,034	$	49,832	$	117,197	$	192,622


*(dollars in thousands)*	One Year or Less		One Year to Five Years		Five to Ten Years		Over Ten Years		Total
Amortized Cost
Securities available for sale:
U.S. agency mortgage-backed	$	—	$	95	$	28,260	$	97,498	$	125,853
Non-U.S. agency mortgage-backed		—		—		—		6,988		6,988
Municipal bonds		876		7,596		12,053		2,558		23,083
U.S. government agency		—		16,091		—		4,342		20,433

Total available for sale	$	876	$	23,782	$	40,313	$	111,386	$	176,357


Securities held to maturity:
Municipal bonds	$	635	$	—	$	9,240	$	4,614	$	14,489

Total investment securities	$	1,511	$	23,782	$	49,553	$	116,000	$	190,846

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; and (3) the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which may extend to maturity.

The Company performs a process to identify securities that could potentially have a credit impairment that is other-than-temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

As of June 30, 2015, 49 of the Company’s debt securities had unrealized losses totaling 1.4% of the individual securities’ amortized cost basis and 0.5% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 18 of the 49 securities had been in a continuous loss position for over 12 months. The 18 securities had an aggregate amortized cost basis of $27.2 million and unrealized loss of $518,000 at June 30, 2015. Management has the intent and ability to hold these debt securities until maturity, or until anticipated recovery; hence, no declines in these 18 securities were deemed to be other-than-temporary.

As of June 30, 2015 and December 31, 2014, the Company had $91,664,000 and $76,491,000, respectively, of securities pledged to secure public deposits. As of June 30, 2015 and December 31, 2014, the Company had $21,426,000 and $21,211,000 of securities pledged to securities sold under repurchase agreements.

5. Earnings Per Share

Earnings per common share were computed based on the following:


	Three Months Ended June 30,				Six Months Ended June 30,
*(in thousands, except per share data)*	2015		2014		2015		2014

Numerator:
Net income available to common shareholders	$	2,840	$	2,753	$	5,688	$	4,186

Denominator:
Weighted average common shares outstanding		6,695		6,533		6,664		6,512
Effect of dilutive securities:
Restricted stock		4		32		4		46
Stock options		275		338		300		339

Weighted average common shares outstanding – assuming dilution		6,974		6,903		6,968		6,897


Basic earnings per common share	$	0.42	$	0.42	$	0.85	$	0.64

Diluted earnings per common share	$	0.41	$	0.40	$	0.82	$	0.61

Options on 55,773 and 47,500 shares of common stock were not included in the computation of diluted earnings per share for the three months ended June 30, 2015 and June 30, 2014, respectively, because the effect of these shares was anti-dilutive. Options on 32,636 and 47,500 shares of common stock were not included in the computation of diluted earnings per share for the six months ended June 30, 2015 and June 30, 2014, respectively, because the effect of these shares was anti-dilutive.

6. Credit Quality and Allowance for Loan Losses

The following briefly describes the distinction between originated and acquired loans and certain significant accounting policies relevant to each category.

Originated Loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recorded as income as earned. The accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. The Company maintains an allowance for loan losses on originated loans that represents management’s estimate of probable losses incurred in this portfolio category.

Acquired Loans

Loans that were acquired as a result of our acquisitions of certain assets and liabilities of Statewide Bank (“Statewide”) of Covington, Louisiana, on March 12, 2010, GS Financial Corp. (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana, on July 15, 2011 and Britton & Koontz Capital Corporation (“Britton & Koontz”), the former holding company of Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi on February 14, 2014 are referred to as “Acquired Loans.”

Acquired Loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“acquired performing”) and those with evidence of credit deterioration (“acquired impaired”), and then further segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates.

The difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool. Management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for

originated loans. The allowance determined for each loan pool is compared to the remaining fair value discount for that pool. If the allowance amount calculated under the Company’s methodology is greater than the Company’s remaining discount, the additional amount called for is added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology is less than the Company’s recorded discount, no additional allowance or provision is recognized. Actual losses first reduce any remaining nonaccretable discount for the loan pool. Once the nonaccretable discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of cash flows expected to be collected from an acquired impaired loan pool over the pool’s estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically. If the present value of expected cash flows for a pool is less than its carrying value, an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans, even if they would otherwise qualify for such treatment.

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, as of March 31, 2015, a significant portion of the loss share agreements had expired and any future losses on these formerly covered loans are no longer eligible for reimbursement from the FDIC. As of March 31, 2015, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. As of June 30, 2015, the Company’s remaining covered loans amounted to approximately $4.2 million, or less than 1.0% of the Company’s total loan portfolio, at such date. Given the limited amount of covered loans remaining, the Company is no longer reporting such loans as “covered loans,” and the remaining covered loans are included in “acquired loans.”

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows.


	As of June 30, 2015
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans		Total
Allowance for loan losses:
One- to four-family first mortgage	$	1,209	$	—	$	135	$	1,344
Home equity loans and lines		477		—		200		677
Commercial real estate		2,899		86		—		2,985
Construction and land		1,071		—		59		1,130
Multi-family residential		220		—		—		220
Commercial and industrial		1,453		101		—		1,554
Consumer		556		—		—		556

Total allowance for loan losses	$	7,885	$	187	$	394	$	8,466


	As of June 30, 2015
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans⁽¹⁾		Total
Loans:
One- to four-family first mortgage	$	171,737	$	78	$	61,677	$	233,492
Home equity loans and lines		36,941		—		17,982		54,923
Commercial real estate		280,587		201		59,807		340,595
Construction and land		85,402		—		8,743		94,145
Multi-family residential		20,571		—		10,030		30,601
Commercial and industrial		100,461		1,134		13,548		115,143
Consumer		44,436		—		2,217		46,653

Total loans	$	740,135	$	1,413	$	174,004	$	915,552

	As of December 31, 2014
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans		Total
Allowance for loan losses:
One- to four-family first mortgage	$	1,136	$	—	$	174	$	1,310
Home equity loans and lines		442		—		111		553
Commercial real estate		2,815		107		—		2,922
Construction and land		968		—		133		1,101
Multi-family residential		192		—		—		192
Commercial and industrial		1,128		33		—		1,161
Consumer		521		—		—		521

Total allowance for loan losses	$	7,202	$	140	$	418	$	7,760

	As of December 31, 2014
	Originated Loans
*(dollars in thousands)*	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Acquired Loans⁽¹⁾		Total
Loans:
One- to four-family first mortgage	$	164,450	$	78	$	68,721	$	233,249
Home equity loans and lines		34,485		—		21,515		56,000
Commercial real estate		279,493		777		72,593		352,863
Construction and land		77,057		—		12,097		89,154
Multi-family residential		16,507		—		10,868		27,375
Commercial and industrial		88,411		1,128		14,907		104,446
Consumer		43,049		—		2,832		45,881

Total loans	$	703,452	$	1,983	$	203,533	$	908,968

⁽¹⁾	$22.4 million and $31.9 million in acquired loans were accounted for under ASC 310-30 at June 30, 2015 and December 31, 2014, respectively.

A summary of activity in the allowance for loan losses during the six months ended June 30, 2015 and June 30, 2014 follows.


	For the Six Months Ended June 30, 2015
*(dollars in thousands)*	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,136	$	—		$	30	$	43		$	1,209
Home equity loans and lines		442		(14	)		4		45			477
Commercial real estate		2,922		—			—		63			2,985
Construction and land		968		—			—		103			1,071
Multi-family residential		192		—			—		28			220
Commercial and industrial		1,161		(64	)		72		385			1,554
Consumer		521		(46	)		—		81			556

Total allowance for loan losses	$	7,342	$	(124	)	$	106	$	748		$	8,072


Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	174	$	—		$	—	$	(39	)	$	135
Home equity loans and lines		111		—			—		89			200
Commercial real estate		—		—			—		—			—
Construction and land		133		(109	)		—		35			59
Multi-family residential		—		—			—		—			—
Commercial and industrial		—		—			—		—			—
Consumer		—		—			—		—			—

Total allowance for loan losses	$	418	$	(109	)	$	—	$	85		$	394


Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,310	$	—		$	30	$	4		$	1,344
Home equity loans and lines		553		(14	)		4		134			677
Commercial real estate		2,922		—			—		63			2,985
Construction and land		1,101		(109	)		—		138			1,130
Multi-family residential		192		—			—		28			220
Commercial and industrial		1,161		(64	)		72		385			1,554
Consumer		521		(46	)		—		81			556

Total allowance for loan losses	$	7,760	$	(233	)	$	106	$	833		$	8,466


	For the Six Months Ended June 30, 2014
*(dollars in thousands)*	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Originated loans:
Allowance for loan losses:
One- to four-family first mortgage	$	904	$	(96	)	$	—	$	228		$	1,036
Home equity loans and lines		366		—			3		60			429
Commercial real estate		2,528		—			—		222			2,750
Construction and land		977		(19	)		—		250			1,208
Multi-family residential		90		—			—		31			121
Commercial and industrial		1,332		—			76		(106	)		1,302
Consumer		473		(18	)		2		35			492

Total allowance for loan losses	$	6,670	$	(133	)	$	81	$	720		$	7,338


Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage	$	184	$	(64	)	$	—	$	56		$	176
Home equity loans and lines		58		—			—		53			111
Commercial real estate		—		—			—		—			—
Construction and land		—		—			—		133			133
Multi-family residential		—		—			—		—			—
Commercial and industrial		6		—			—		(6	)		—
Consumer		—		—			—		—			—

Total allowance for loan losses	$	248	$	(64	)	$	—	$	236		$	420


Total loans:
Allowance for loan losses:
One- to four-family first mortgage	$	1,088	$	(160	)	$	—	$	284		$	1,212
Home equity loans and lines		424		—			3		113			540
Commercial real estate		2,528		—			—		222			2,750
Construction and land		977		(19	)		—		383			1,341
Multi-family residential		90		—			—		31			121
Commercial and industrial		1,338		—			76		(112	)		1,302
Consumer		473		(18	)		2		35			492

Total allowance for loan losses	$	6,918	$	(197	)	$	81	$	956		$	7,758

Credit quality indicators on the Company’s loan portfolio as of the dates indicated are as follows.


	June 30, 2015
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	169,287	$	1,337	$	1,191	$	—	$	171,815
Home equity loans and lines		36,385		428		128		—		36,941
Commercial real estate		276,043		3,510		1,235		—		280,788
Construction and land		84,188		91		1,123		—		85,402
Multi-family residential		20,571		—		—		—		20,571
Commercial and industrial		98,736		31		2,828		—		101,595
Consumer		44,004		122		310		—		44,436

Total loans	$	729,214	$	5,519	$	6,815	$	—	$	741,548


Acquired loans:
One- to four-family first mortgage	$	55,840	$	1,379	$	4,458	$	—	$	61,677
Home equity loans and lines		17,634		22		326		—		17,982
Commercial real estate		52,345		2,062		5,400		—		59,807
Construction and land		4,913		2,322		1,508		—		8,743
Multi-family residential		9,020		19		991		—		10,030
Commercial and industrial		12,486		—		1,062		—		13,548
Consumer		2,087		77		53		—		2,217

Total loans	$	154,325	$	5,881	$	13,798	$	—	$	174,004


Total:
One- to four-family first mortgage	$	225,127	$	2,716	$	5,649	$	—	$	233,492
Home equity loans and lines		54,019		450		454		—		54,923
Commercial real estate		328,388		5,572		6,635		—		340,595
Construction and land		89,101		2,413		2,631		—		94,145
Multi-family residential		29,591		19		991		—		30,601
Commercial and industrial		111,222		31		3,890		—		115,143
Consumer		46,091		199		363		—		46,653

Total loans	$	883,539	$	11,400	$	20,613	$	—	$	915,552


	December 31, 2014
*(dollars in thousands)*	Pass		Special Mention		Substandard		Doubtful		Total
Originated loans:
One- to four-family first mortgage	$	161,922	$	251	$	2,355	$	—	$	164,528
Home equity loans and lines		33,731		255		499		—		34,485
Commercial real estate		274,878		3,655		1,737		—		280,270
Construction and land		75,888		103		1,066		—		77,057
Multi-family residential		15,642		865		—		—		16,507
Commercial and industrial		88,309		39		1,191		—		89,539
Consumer		42,718		2		329		—		43,049

Total loans	$	693,088	$	5,170	$	7,177	$	—	$	705,435


Acquired loans:
One- to four-family first mortgage	$	62,761	$	1,007	$	4,953	$	—	$	68,721
Home equity loans and lines		20,842		57		616		—		21,515
Commercial real estate		61,172		2,071		9,350		—		72,593
Construction and land		6,407		1		5,689		—		12,097
Multi-family residential		8,175		923		1,770		—		10,868
Commercial and industrial		13,699		—		1,208		—		14,907
Consumer		2,741		40		51		—		2,832

Total loans	$	175,797	$	4,099	$	23,637	$	—	$	203,533


Total:
One- to four-family first mortgage	$	224,683	$	1,258	$	7,308	$	—	$	233,249
Home equity loans and lines		54,573		312		1,115		—		56,000
Commercial real estate		336,050		5,726		11,087		—		352,863
Construction and land		82,295		104		6,755		—		89,154
Multi-family residential		23,817		1,788		1,770		—		27,375
Commercial and industrial		102,008		39		2,399		—		104,446
Consumer		45,459		42		380		—		45,881

Total loans	$	868,885	$	9,269	$	30,814	$	—	$	908,968

The above classifications follow regulatory guidelines and can generally be described as follows:

•

Pass loans are of satisfactory quality.

•

Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

•

Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial performance. Such loans may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

•

Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

In addition, residential loans are classified using an inter-agency regulatory methodology that incorporates the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter.

Age analysis of past due loans as of the dates indicated are as follows.


	June 30, 2015
*(dollars in thousands)*	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	1,637	$	292	$	529	$	2,458	$	169,357	$	171,815
Home equity loans and lines		169		9		128		306		36,635		36,941
Commercial real estate		—		91		617		708		280,080		280,788
Construction and land		422		—		—		422		84,980		85,402
Multi-family residential		—		—		—		—		20,571		20,571

Total real estate loans		2,228		392		1,274		3,894		591,623		595,517


Other loans:
Commercial and industrial		210		93		423		726		100,869		101,595
Consumer		662		209		310		1,181		43,255		44,436

Total other loans		872		302		733		1,907		144,124		146,031

Total loans	$	3,100	$	694	$	2,007	$	5,801	$	735,747	$	741,548


Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	2,349	$	847	$	3,273	$	6,469	$	55,208	$	61,677
Home equity loans and lines		149		61		92		302		17,680		17,982
Commercial real estate		322		8		2,083		2,413		57,394		59,807
Construction and land		627		1		250		878		7,865		8,743
Multi-family residential		—		19		—		19		10,011		10,030

Total real estate loans		3,447		936		5,698		10,081		148,158		158,239


Other loans:
Commercial and industrial		96		—		623		719		12,829		13,548
Consumer		45		17		36		98		2,119		2,217

Total other loans		141		17		659		817		14,948		15,765

Total loans	$	3,588	$	953	$	6,357	$	10,898	$	163,106	$	174,004


Total loans:
Real estate loans:
One- to four-family first mortgage	$	3,986	$	1,139	$	3,802	$	8,927	$	224,565	$	233,492
Home equity loans and lines		318		70		220		608		54,315		54,923
Commercial real estate		322		99		2,700		3,121		337,474		340,595
Construction and land		1,049		1		250		1,300		92,845		94,145
Multi-family residential		—		19		—		19		30,582		30,601

Total real estate loans		5,675		1,328		6,972		13,975		739,781		753,756


Other loans:
Commercial and industrial		306		93		1,046		1,445		113,698		115,143
Consumer		707		226		346		1,279		45,374		46,653

Total other loans		1,013		319		1,392		2,724		159,072		161,796

Total loans	$	6,688	$	1,647	$	8,364	$	16,699	$	898,853	$	915,552


	December 31, 2014
*(dollars in thousands)*	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current Loans		Total Loans
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	2,056	$	90	$	1,058	$	3,204	$	161,324	$	164,528
Home equity loans and lines		434		—		65		499		33,986		34,485
Commercial real estate		1,284		—		829		2,113		278,157		280,270
Construction and land		309		—		—		309		76,748		77,057
Multi-family residential		—		—		—		—		16,507		16,507

Total real estate loans		4,083		90		1,952		6,125		566,722		572,847


Other loans:
Commercial and industrial		271		49		451		771		88,768		89,539
Consumer		924		133		329		1,386		41,663		43,049

Total other loans		1,195		182		780		2,157		130,431		132,588

Total loans	$	5,278	$	272	$	2,732	$	8,282	$	697,153	$	705,435


Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	2,323	$	1,341	$	2,836	$	6,500	$	62,221	$	68,721
Home equity loans and lines		249		97		220		566		20,949		21,515
Commercial real estate		4,551		1		1,840		6,392		66,201		72,593
Construction and land		499		755		702		1,956		10,141		12,097
Multi-family residential		1,052		25		319		1,396		9,472		10,868

Total real estate loans		8,674		2,219		5,917		16,810		168,984		185,794


Other loans:
Commercial and industrial		177		392		336		905		14,002		14,907
Consumer		47		33		41		121		2,711		2,832

Total other loans		224		425		377		1,026		16,713		17,739

Total loans	$	8,898	$	2,644	$	6,294	$	17,836	$	185,697	$	203,533


Total loans:
Real estate loans:
One- to four-family first mortgage	$	4,379	$	1,431	$	3,894	$	9,704	$	223,545	$	233,249
Home equity loans and lines		683		97		285		1,065		54,935		56,000
Commercial real estate		5,835		1		2,669		8,505		344,358		352,863
Construction and land		808		755		702		2,265		86,889		89,154
Multi-family residential		1,052		25		319		1,396		25,979		27,375

Total real estate loans		12,757		2,309		7,869		22,935		735,706		758,641


Other loans:
Commercial and industrial		448		441		787		1,676		102,770		104,446
Consumer		971		166		370		1,507		44,374		45,881

Total other loans		1,419		607		1,157		3,183		147,144		150,327

Total loans	$	14,176	$	2,916	$	9,026	$	26,118	$	882,850	$	908,968

Excluding Acquired Loans with deteriorated credit quality, as of June 30, 2015 and December 31, 2014, the Company did not have any loans greater than 90 days past due and accruing.

The following is a summary of information pertaining to Originated Loans which were deemed to be impaired loans as of the dates indicated.


	As of Period Ended June 30, 2015
*(dollars in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	78	$	78	$	—	$	78	$	3
Home equity loans and lines		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		364		364		—		393		11
Consumer		—		—		—		—		—

Total	$	442	$	442	$	—	$	471	$	14


With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		201		201		86		695		6
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		770		770		101		732		21
Consumer		—		—		—		—		—

Total	$	971	$	971	$	187	$	1,427	$	27


Total impaired Originated Loans:
One- to four-family first mortgage	$	78	$	78	$	—	$	78	$	3
Home equity loans and lines		—		—		—		—		—
Commercial real estate		201		201		86		695		6
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		1,134		1,134		101		1,125		32
Consumer		—		—		—		—		—

Total	$	1,413	$	1,413	$	187	$	1,898	$	41


	As of Period Ended December 31, 2014
*(dollars in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One- to four-family first mortgage	$	78	$	78	$	—	$	214	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		—		—		—		64		—
Construction and land		—		—		—		15		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		398		398		—		494		4
Consumer		—		—		—		—		—

Total	$	476	$	476	$	—	$	787	$	4


With an allowance recorded:
One- to four-family first mortgage	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		777		777		107		239		10
Construction and land		—		—		—		—		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		730		730		33		923		40
Consumer		—		—		—		—		—

Total	$	1,507	$	1,507	$	140	$	1,162	$	50


Total impaired Originated Loans:
One- to four-family first mortgage	$	78	$	78	$	—	$	214	$	—
Home equity loans and lines		—		—		—		—		—
Commercial real estate		777		777		107		303		10
Construction and land		—		—		—		15		—
Multi-family residential		—		—		—		—		—
Commercial and industrial		1,128		1,128		33		1,417		44
Consumer		—		—		—		—		—

Total	$	1,983	$	1,983	$	140	$	1,949	$	54

A summary of information pertaining to nonaccrual loans as of dates indicated is as follows.


	June 30, 2015						December 31, 2014
*(dollars in thousands)*	Originated		Acquired⁽¹⁾		Total		Originated		Acquired⁽¹⁾		Total
Nonaccrual loans:
One- to four-family first mortgage	$	529	$	3,985	$	4,514	$	1,429	$	5,072	$	6,501
Home equity loans and lines		128		291		419		65		482		547
Commercial real estate		617		2,840		3,457		829		5,498		6,327
Construction and land		100		423		523		—		5,356		5,356
Multi-family residential		—		791		791		—		1,770		1,770
Commercial and industrial		1,133		840		1,973		1,191		1,168		2,359
Consumer		310		72		382		329		92		421

Total	$	2,817	$	9,242	$	12,059	$	3,843	$	19,438	$	23,281

⁽¹⁾	Nonaccrual acquired loans accounted for under ASC 310-30 totaled $6.7 million and $15.1 million as of June 30, 2015 and December 31, 2014, respectively.

As of June 30, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

Troubled Debt Restructurings

During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. The Company adopted the provisions of ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which provides clarification on the determination of whether loan restructurings are considered troubled debt restructurings (“TDRs”). In accordance with the ASU, in order to be considered a TDR, the Company must conclude that the restructuring of a loan to a borrower who is experiencing financial difficulties constitutes a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession is either granted through an agreement with the customer or is imposed by a court or by a law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

•

a reduction of the stated interest rate for the remaining original life of the debt,

•

an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar risk characteristics,

•

a reduction of the face amount or maturity amount of the debt, or

•

a reduction of accrued interest receivable on the debt.

In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators, including, but not limited to:

•

whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the customer will be in default on its loan in the foreseeable future without a modification,

•

whether the customer has declared or is in the process of declaring bankruptcy,

•

whether there is substantial doubt about the customer’s ability to continue as a going concern,

•

whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the existing agreement for the foreseeable future, and

•

whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a non-troubled debtor.

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an allowance for loan losses on TDRs, such loans are reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company specifically allocates a portion of the allowance for loan losses to these loans.

Information about the Company’s TDRs is presented in the following tables.


	As of June 30, 2015
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	284	$	—	$	—	$	284
Home equity loans and lines		—		—		—		—
Commercial real estate		311		—		—		311
Construction and land		91		—		—		91
Multi-family residential		—		—		—		—

Total real estate loans		686		—		—		686


Other loans:
Commercial and industrial		—		—		710		710
Consumer		—		—		—		—

Total other loans		—		—		710		710

Total loans	$	686	$	—	$	710	$	1,396


Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	501	$	—	$	42	$	543
Home equity loans and lines		—		—		—		—
Commercial real estate		—		—		1,246		1,246
Construction and land		—		—		66		66
Multi-family residential		—		—		—		—

Total real estate loans		501		—		1,354		1,855


Other loans:
Commercial and industrial		—		—		—		—
Consumer		—		—		1		1

Total other loans		—		—		1		1

Total loans	$	501	$	—	$	1,355	$	1,856


Total loans:
Real estate loans:
One- to four-family first mortgage	$	785	$	—	$	42	$	827
Home equity loans and lines		—		—		—		—
Commercial real estate		311		—		1,246		1,557
Construction and land		91		—		66		157
Multi-family residential		—		—		—		—

Total real estate loans		1,187		—		1,354		2,541


Other loans:
Commercial and industrial		—		—		710		710
Consumer		—		—		1		1

Total other loans		—		—		711		711

Total loans	$	1,187	$	—	$	2,065	$	3,252


	As of December 31, 2014
*(dollars in thousands)*	Current		Past Due Greater Than 30 Days		Nonaccrual TDRs		Total TDRs
Originated loans:
Real estate loans:
One- to four-family first mortgage	$	—	$	—	$	291	$	291
Home equity loans and lines		—		—		—		—
Commercial real estate		111		—		—		111
Construction and land		103		—		—		103
Multi-family residential		—		—		—		—

Total real estate loans		214		—		291		505


Other loans:
Commercial and industrial		—		—		730		730
Consumer		—		—		—		—

Total other loans		—		—		730		730

Total loans	$	214	$	—	$	1,021	$	1,235


Acquired loans:
Real estate loans:
One- to four-family first mortgage	$	432	$	77	$	49	$	558
Home equity loans and lines		—		—		—		—
Commercial real estate		—		—		967		967
Construction and land		—		—		117		117
Multi-family residential		—		—		—		—

Total real estate loans		432		77		1,133		1,642


Other loans:
Commercial and industrial		—		—		—		—
Consumer		2		—		2		4

Total other loans		2		—		2		4

Total loans	$	434	$	77	$	1,135	$	1,646


Total loans:
Real estate loans:
One- to four-family first mortgage	$	432	$	77	$	340	$	849
Home equity loans and lines		—		—		—		—
Commercial real estate		111		—		967		1,078
Construction and land		103		—		117		220
Multi-family residential		—		—		—		—

Total real estate loans		646		77		1,424		2,147


Other loans:
Commercial and industrial		—		—		730		730
Consumer		2		—		2		4

Total other loans		2		—		732		734

Total loans	$	648	$	77	$	2,156	$	2,881

None of the above referenced TDRs defaulted subsequent to the restructuring through the date the financial statements were issued. The Company restructured, as a TDR, one loan totaling $201,000 during the second quarter of 2015.

7. Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company groups assets and liabilities measured or disclosed at fair value in three levels as required by ASC 820, Fair Value Measurements and Disclosures. Under this guidance, fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels used to measure fair value are as follows:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities quarterly.

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities bids, offers and other reference data from market research publications. If quoted prices are available in an active market, investment securities are classified as Level 1 measurements. If quoted prices are not available in an active market, fair values are estimated primarily by the use of pricing models. Level 2 investment securities are primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of June 30, 2015, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The following tables present the balances of assets and liabilities measured for fair value on a recurring basis as of June 30, 2015 and December 31, 2014.


			Fair Value Measurements Using
*(dollars in thousands)*	June 30, 2015		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	126,961	$	—	$	126,961	$	—
Non-U.S. agency mortgage-backed		6,993		—		6,993		—
Municipal bonds		23,534		—		23,534		—
U.S. government agency		20,591		—		20,591		—

Total	$	178,079	$	—	$	178,079	$	—


			Fair Value Measurements Using
*(dollars in thousands)*	December 31, 2014		Level 1		Level 2		Level 3
Available for sale securities:
U.S. agency mortgage-backed	$	121,498	$	—	$	121,498	$	—
Non-U.S. agency mortgage-backed		7,764		—		7,764		—
Municipal bonds		24,896		—		24,896		—
U.S. government agency		20,643		—		20,643		—

Total	$	174,801	$	—	$	174,801	$	—

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

Nonrecurring Basis

In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Impaired loans are classified as Level 3 assets when measured using appraisals from external parties of the collateral less any prior liens and when there is no observable market price. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company classifies repossessed assets as Level 3 assets.

Acquired loans, acquired FHLB advances, and acquired interest-bearing deposit liabilities are measured on a nonrecurring basis using significant unobservable inputs (Level 3).

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.


			Fair Value Measurements Using
*(dollars in thousands)*	June 30, 2015		Level 1		Level 2		Level 3

Assets
Acquired loans with deteriorated credit quality	$	22,274	$	—	$	—	$	22,274
Acquired loans without deteriorated credit quality		151,336		—		—		151,336
Impaired loans, excluding acquired loans		1,226		—		—		1,226
Repossessed assets		6,204		—		—		6,204

Total	$	181,040	$	—	$	—	$	181,040


Liabilities
Deposits acquired through business combinations	$	60,577	$	—	$	—	$	60,577
Securities sold under repurchase agreement		20,037		—		—		20,037

Total	$	80,614	$	—	$	—	$	80,614


			Fair Value Measurements Using
*(dollars in thousands)*	December 31, 2014		Level 1		Level 2		Level 3

Assets
Acquired loans with deteriorated credit quality	$	31,908	$	—	$	—	$	31,908
Acquired loans without deteriorated credit quality		171,206		—		—		171,206
Impaired loans, excluding acquired loans		1,843		—		—		1,843
Repossessed assets		5,214		—		—		5,214

Total	$	210,171	$	—	$	—	$	210,171


Liabilities
Deposits acquired through business combinations	$	69,178	$	—	$	—	$	69,178
Securities sold under repurchase agreement		20,371		—		—		20,371

Total	$	89,549	$	—	$	—	$	89,549

ASC 820, Fair Value Measurements and Disclosures, requires the disclosure of each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

The carrying value of cash and cash equivalents and interest-bearing deposits in banks approximate their fair value.

The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using third party pricing services or quoted market prices of securities with similar characteristics.

The carrying value of mortgage loans held for sale approximates their fair value.

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturity.

The cash surrender value of bank-owned life insurance (“BOLI”) approximates its fair value.

The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

The fair value of short-term FHLB advances is the amount payable at maturity. The fair value of long-term FHLB advances is estimated by discounting the future cash flows using the rates currently offered for advances of similar maturities.

The carrying value of the securities sold under repurchase agreement is its fair value.

The following table presents estimated fair values of the Company’s financial instruments as of the dates indicated.


			Fair Value Measurements at June 30, 2015
*(dollars in thousands)*	Carrying Amount		Total		Level 1		Level 2		Level 3

Financial Assets
Cash and cash equivalents	$	30,228	$	30,228	$	30,228	$	—	$	—
Interest-bearing deposits in banks		5,526		5,526		5,526		—		—
Investment securities available for sale		178,079		178,079		—		178,079		—
Investment securities held to maturity		14,489		14,543		—		14,543		—
Mortgage loans held for sale		6,696		6,696		—		6,696		—
Loans, net		907,086		914,304		—		—		914,304
Cash surrender value of BOLI		19,420		19,420		19,420		—		—

Financial Liabilities
Deposits	$	1,030,972	$	1,031,262	$	—	$	970,685	$	60,577
Short-term FHLB advances		—		—		—		—		—
Long-term FHLB advances		19,000		19,402		—		19,402		—
Securities sold under repurchase agreement		20,037		20,037		—		—		20,037


			Fair Value Measurements at December 31, 2014
*(dollars in thousands)*	Carrying Amount		Total		Level 1		Level 2		Level 3

Financial Assets
Cash and cash equivalents	$	29,078	$	29,078	$	29,078	$	—	$	—
Interest-bearing deposits in banks		5,526		5,526		5,526		—		—
Investment securities available for sale		174,801		174,801		—		174,801		—
Investment securities held to maturity		11,705		11,889		—		11,889		—
Mortgage loans held for sale		4,517		4,517		—		4,517		—
Loans, net		901,208		908,346		—		—		908,346
Cash surrender value of BOLI		19,163		19,163		19,163		—		—

Financial Liabilities
Deposits	$	993,573	$	993,994	$	—	$	924,816	$	69,178
Short-term FHLB advances		31,000		31,000		31,000		—		—
Long-term FHLB advances		16,500		16,987		—		16,987		—
Securities sold under repurchase agreement		20,371		20,371		—		—		20,371

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Home Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Home Bank, N. A. (the “Bank”), from December 31, 2014 through June 30, 2015 and on its results of operations for the three and six months ended June 30, 2015 and June 30, 2014. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Forward-Looking Statements

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or Bank, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions, or by future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”. The Company’s or the Bank’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) for the year ended December 31, 2014. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

EXECUTIVE OVERVIEW

On June 18, 2015, the Company entered into a definitive agreement with Louisiana Bancorp Inc., the holding company of the 105-year-old Bank of New Orleans, providing for the merger of LABC with and into the Company and the subsequent merger of Bank of New Orleans with and into the Bank. The holding companies for each bank will also merge. Under the terms of the agreement, shareholders of Louisiana Bancorp will receive $24.25 per share in cash upon completion of the merger. The merger, which is expected to be completed in the fourth quarter of 2015, is subject to Louisiana Bancorp shareholder approval, regulatory approval and other customary conditions. Upon completion of the merger, the combined company will have total assets of approximately $1.5 billion, $1.2 billion in loans and $1.2 billion in deposits.

During the second quarter of 2015, the Company earned $2.8 million, an increase of $87,000, or 3.2%, compared to the second quarter of 2014. Diluted earnings per share for the second quarter of 2015 were $0.41, an increase of $0.01 per share, or 2.5%, compared to the second quarter of 2014. The three and six months ended June 30, 2015 included $232,000 net of tax expenses related to the pending acquisition of Louisiana Bancorp. The three and six months ended June 30, 2014 included $218,000 and $1.5 million, respectively, of net of tax expenses related to the acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”) in February 2014. Excluding merger-related expenses, net income for the second quarter of 2015 increased 3.4% compared to the second quarter of 2014 (see the “Non-GAAP Reconciliation” on page 28). Excluding merger-related expenses, diluted earnings per share for the second quarter of 2015 increased 2.3% compared to the second quarter of 2014.

During the six months ended June 30, 2015, the Company earned $5.7 million, an increase of $1.5 million, or 35.9%, compared to the six months ended June 30, 2014. Diluted earnings per share for the six months ended June 30, 2015 were $0.82, an increase of $0.21, or 34.4%, compared to the six months ended June 30, 2014. Excluding merger-related expenses, net income for the six months ended June 30, 2015 increased 3.5% compared to the six months ended June 30, 2014. Excluding merger-related expenses, diluted earnings per share for the six months ended June 30, 2015 increased 2.4% compared to the six months ended June 30, 2014.

Key components of the Company’s performance during the three and six months ended June 30, 2015 are summarized below.

•

Assets totaled $1.2 billion as of June 30, 2015, up $13.4 million, or 1.1%, from December 31, 2014. The increase was primarily the result of a $6.6 million increase in loans and a $6.1 million increase in investment securities.

•

Loans as of June 30, 2015 were $915.6 million, an increase of $6.6 million, or 0.7%, from December 31, 2014. The increase was primarily the result of increases in commercial and industrial loans (up $10.7 million) and construction and land loans (up $5.0 million),.

•

Total deposits as of June 30, 2015 were $1.0 billion, an increase of $37.4 million, or 3.8%, from December 31, 2014. Core deposits (i.e., checking, savings, and money market accounts) totaled $819.9 million as of June 30, 2015, an increase of $47.1 million, or 6.1%, from December 31, 2014. The increase in core deposits was primarily driven by increases in money market (up $30.5 million) and NOW accounts (up $13.1 million).

•

The Company purchased 49,200 shares of its common stock during the second quarter of 2015 at an average price per share of $22.11. As of June 30, 2015, an additional 38,396 shares remain eligible for purchase under the share repurchase plan announced in June 2013.

•

Interest income decreased $352,000, or 2.5%, in the second quarter of 2015, compared to the second quarter of 2014. For the six months ended June 30, 2015, interest income increased $387,000, or 1.5%, compared to the six months ended June 30, 2014. Interest income remained relatively stable due to a decrease in the average yield earned on loans, which offset an increase in average loan volume in the quarter and six months ended June 30, 2015 compared to the prior comparable period.

•

Interest expense decreased $15,000, or 1.8%, from the second quarter of 2015 compared to the second quarter of 2014. For the six months ended June 30, 2015, interest expense increased $42,000, or 2.7%, compared to the six months ended June 30, 2014. The average cost of interest-bearing liabilities remained relatively unchanged while the mix in volume of interest bearing liabilities shifted for the quarter and six months ended June 30, 2015 compared to the prior comparable period.

•

The provision for loan losses totaled $294,000 for the second quarter of 2015, a decrease of $517,000, or 63.7%, compared to the second quarter of 2014. For the six months ended June 30, 2015, the provision for loan losses decreased $123,000, or 12.9%, from the six months ended June 30, 2014. At June 30, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.92%, compared to 0.85% at June 30, 2014. Net loan charge-offs for the first six months of 2015 were $126,000 compared to net charge-offs of $116,000 during the first six months of 2014.

•

Noninterest income for the second quarter of 2015 decreased $213,000, or 9.5%, compared to the second quarter of 2014, due primarily to decreased gains on the sale of loans. For the six months ended June 30, 2015, noninterest income increased $209,000, or 5.4%, compared to the six months ended June 30, 2014. The increase resulted primarily from increases in bank card fees and service fees and charges.

•

Noninterest expense for the second quarter of 2015 decreased $142,000, or 1.4%, compared to the second quarter of 2014. Noninterest expense for the six months ended June 30, 2015 decreased 7.8% compared to the six months ended June 30, 2014. Noninterest expense includes merger expenses related to the pending acquisition of Louisiana Bancorp of $256,000 for the three and six months ended June, 30, 2015 and Britton & Koontz of $331,000 and $2.3 million for the three and six months ended June 30, 2014, respectively. Excluding pre-tax merger-related expenses, noninterest expense decreased $67,000, or 0.7%, for the second quarter of 2015 compared to the second quarter of 2014. Excluding merger-related expenses, noninterest expense increased $350,000, or 1.8%, for the six months ended June 30, 2015 compared to the six months ended June 30, 2014.

The discussion and analysis contains financial information prepared other than in accordance with generally accepted accounting principles (“GAAP”). The Company uses these non-GAAP financial measures in their

analysis of the Company’s performance. Management believes that the non-GAAP information provides useful data in understanding the Company’s operations and in comparing the Company’s results of operation to peers. This non-GAAP information should be considered in addition to the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Reconciliation of GAAP to non-GAAP disclosures is included in the table below.

Non-GAAP Reconciliation


	For the Three Months Ended						For the Six Months Ended
*(dollars in thousands)*	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014

Reported noninterest expense	$	10,228		$	10,371		$	19,947		$	21,627
Less: Merger-related expenses		(256	)		(331	)		(256	)		(2,286	)

Non-GAAP noninterest expense	$	9,972		$	10,039		$	19,691		$	19,341


Reported net income	$	2,840		$	2,753		$	5,688		$	4,186
Add: Merger-related expenses (after tax)		232			218			232			1,534

Non-GAAP net income	$	3,072		$	2,971		$	5,920		$	5,720


Diluted EPS	$	0.41		$	0.40		$	0.82		$	0.61
Add: Merger-related expenses		0.03			0.03			0.03			0.22

Non-GAAP EPS	$	0.44		$	0.43		$	0.85		$	0.83

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of June 30, 2015 were $915.6 million, an increase of $6.6 million, or 0.7%, from December 31, 2014. The increase was primarily the result of increases in commercial and industrial loans (up $10.7 million), construction and land loans (up $5.0 million), and multifamily residential loans ($3.2 million), which were partially offset by a $12.3 million decrease in commercial real estate loans.

The following table summarizes the composition of the Company’s loan portfolio as of the dates indicated.


	June 30, 2015		December 31, 2014		Increase/(Decrease)
*(dollars in thousands)*	June 30, 2015		December 31, 2014		Amount			Percent
Real estate loans:
One- to four-family first mortgage	$	233,492	$	233,249	$	243			0.1	%
Home equity loans and lines		54,923		56,000		(1,077	)		(1.9	)
Commercial real estate		340,595		352,863		(12,268	)		(3.5	)
Construction and land		94,145		89,154		4,991			5.6
Multi-family residential		30,601		27,375		3,226			11.8

Total real estate loans		753,756		758,641		(4,885	)		(0.6	)

Other loans:
Commercial and industrial		115,143		104,446		10,697			10.2
Consumer		46,653		45,881		772			1.7

Total other loans		161,796		150,327		11,469			7.6

Total loans	$	915,552	$	908,968	$	6,584			0.7	%

Asset Quality – One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 days after the date payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All

loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to his/her ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Repossessed assets which are acquired as a result of foreclosure are classified as repossessed assets until sold. Third party property valuations are obtained at the time the asset is repossessed and periodically until the property is liquidated. Repossessed assets are recorded at the lesser of the balance of the loan or fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Costs associated with acquiring and improving a foreclosed property are usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of repossessed assets are charged to operations, as incurred.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger (i.e., loans with balances of $100,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer. The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification. The Board of Directors is provided with monthly reports on impaired loans. As of June 30, 2015 and December 31, 2014, loans individually evaluated for impairment, excluding acquired loans, amounted to $1.4 million and $2.0 million, respectively. As of June 30, 2015 and December 31, 2014, substandard loans, excluding acquired loans, amounted to $6.8 million and $7.2 million, respectively. The amount of the allowance for loan losses allocated to impaired or substandard loans originated by Home Bank totaled $187,000 as of June 30, 2015 and $140,000 as of December 31, 2014. There were no assets classified as doubtful or loss as of June 30, 2015 or December 31, 2014.

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset

quality problems; that management analyzes all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establishes acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Our management believes that, based on information currently available, our allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowance for loan losses may become necessary.

Real estate, or other collateral, which is acquired as a result of foreclosure is classified as a foreclosed asset until sold. Foreclosed assets are recorded at the lesser of the balance of the loan or fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Holding costs are charged to expense. Gains and losses on the sale of real estate owned are charged to operations, as incurred.

The following table sets forth the composition of the Company’s nonperforming assets (“NPAs”) and performing troubled debt restructurings as of the dates indicated.


	June 30, 2015							December 31, 2014
*(dollars in thousands)*	Originated		Acquired⁽¹⁾		Total			Originated		Acquired⁽¹⁾		Total
Nonaccrual loans:
Real estate loans:
One- to four-family first mortgage	$	530	$	3,984	$	4,514		$	1,429	$	5,072	$	6,501
Home equity loans and lines		127		292		419			65		482		547
Commercial real estate		617		2,840		3,457			829		5,498		6,327
Construction and land		100		423		523			—		5,356		5,356
Multi-family residential		—		792		792			—		1,770		1,770
Other loans:
Commercial and industrial		1,133		839		1,972			1,191		1,168		2,359
Consumer		310		72		382			329		92		421

Total nonaccrual loans		2,817		9,242		12,059			3,843		19,438		23,281
Accruing loans 90 days or more past due		—		—		—			—		—		—

Total nonperforming loans		2,817		9,242		12,059			3,843		19,438		23,281
Foreclosed assets		1,832		4,372		6,204			1,835		3,380		5,215

Total nonperforming assets		4,649		13,614		18,263			5,678		22,818		28,496
Performing troubled debt restructurings		686		501		1,187			214		510		724

Total nonperforming assets and troubled debt restructurings	$	5,335	$	14,115	$	19,450		$	5,892	$	23,328	$	29,220

Nonperforming loans to total loans						1.32	%						2.56	%
Nonperforming loans to total assets						0.98	%						1.91	%
Nonperforming assets to total assets						1.48	%						2.33	%

⁽¹⁾

Includes $6.7 million and $15.1 million in acquired loans accounted for under ASC 310-30 at June 30, 2015 and December 31, 2014, respectively. Excluding acquired loans and assets, ratios for nonperforming loans to total loans, nonperforming loans to total assets and nonperforming assets to total assets were 0.38%, 0.27% and 0.44%, respectively, at June 30, 2015.

Net loan charge-offs for the second quarter of 2015 were $100,000, compared to net charge-offs of $157,000 for the second quarter of 2014. Net loan charge-offs for the six months ended June 30, 2015 were $126,000 compared to $116,000 for the six months ended June 30, 2014.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses. The Company maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process includes, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and

geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on this evaluation, management assigns risk ratings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the allowance for loan losses is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

With respect to acquired loans, the Company follows the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, is accreted into interest income over the remaining life of the pool (accretable yield). The Company records a discount on these loans at acquisition to record them at their estimated fair values. As a result, acquired loans subject to ASC 310 are excluded from the calculation of the allowance for loan losses as of the acquisition date. See Note 6 to the Unaudited Consolidated Financial Statements for additional information concerning our allowance for Acquired loans.

Acquired loans were recorded at their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. Under current accounting principles, additional losses after the acquisition date are reflected as a provision to the allowance for loan losses. As June 30, 2015 and December 31, 2014, $135,000 and $124,000, respectively of our allowance for loan losses was allocated to acquired loans with deteriorated credit quality.

We will continue to monitor and modify our allowance for loan losses as conditions warrant. No assurance can be given that our level of allowance for loan losses will cover all of the inherent losses on our loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the conditions used by management to determine the current level of the allowance for loan losses.

The following table presents the activity in the allowance for loan losses during the first six months of 2015.


*(dollars in thousands)*	Originated			Acquired			Total

Balance, December 31, 2014	$	7,342		$	418		$	7,760
Provision charged to operations		748			85			833
Loans charged off		(124	)		(109	)		(233	)
Recoveries on charged off loans		106			—			106

Balance, June 30, 2015	$	8,072		$	394		$	8,466

At June 30, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.92%, compared to 0.85% at December 31, 2014 and June 30, 2014. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.09% at June 30, 2015, compared to 1.04% and 1.10% at December 31, 2014 and June 30, 2014, respectively.

Investment Securities

The Company’s investment securities portfolio totaled $192.6 million as of June 30, 2015, an increase of $6.1 million, or 3.3%, from December 31, 2014. As of June 30, 2015, the Company had a net unrealized gain on its available for sale investment securities portfolio of $1.7 million, compared to $2.0 million as of December 31, 2014. The investment securities portfolio had a modified duration of 3.7 and 3.8 years at June 30, 2015 and December 31, 2014, respectively.

The following table summarizes activity in the Company’s investment securities portfolio during the first six months of 2015.


*(dollars in thousands)*	Available for Sale			Held to Maturity

Balance, December 31, 2014	$	174,801		$	11,705
Purchases		18,713			2,928
Sales		—			—
Principal payments and calls		(14,550	)		—
Accretion of discounts and amortization of premiums, net		(600	)		(144	)
Decrease in market value		(285	)		—

Balance, June 30, 2015	$	178,079		$	14,489

Funding Sources

Deposits – Deposits totaled $1.0 billion as of June 30, 2015, an increase of $37.4 million, or 3.8%, compared to December 31, 2014. Core deposits totaled $819.9 million as of June 30, 2015, an increase of $47.1 million, or 6.1%, compared to December 31, 2014. The increase in deposits during the first six months of 2015 was related primarily to money market accounts (up $30.5 million), NOW accounts (up $13.1 million) and savings accounts (up $5.0 million).

The following table sets forth the composition of the Company’s deposits at the dates indicated.


	June 30,		December 31,		Increase (Decrease)
*(dollars in thousands)*	2015		2014		Amount			Percent

Demand deposit	$	266,204	$	267,660	$	(1,456	)		(0.5	)%
Savings		86,154		81,145		5,009			6.2
Money market		249,938		219,456		30,482			13.9
NOW		217,641		204,536		13,105			6.4
Certificates of deposit		211,035		220,775		(9,740	)		(4.4	)

Total deposits	$	1,030,972	$	993,572	$	37,400			3.8	%

Federal Home Loan Bank Advances – Short-term FHLB advances totaled $31.0 million as of December 31, 2014. No short-term FHLB advances were outstanding as of June 30, 2015. Long-term FHLB advances totaled $19.0 million as of June 30, 2015, compared to $16.5 million as of December 31, 2014.

Securities Sold Under Repurchase Agreements – Securities sold under repurchase agreements totaled $20.0 million as of June 30, 2015 with a July 2015 maturity date and an effective interest rate of 0.36%. The underlying securities are U.S. Government obligations and obligations of other U.S. Government agencies. At June 30, 2015, these securities had coupon rates ranging from 1.25% to 3.75% and maturity dates ranging from 2016 to 2028.

Shareholders’ Equity – Shareholders’ equity increased $4.8 million, or 3.1%, from $154.1 million as of December 31, 2014 to $158.9 million as of June 30, 2015.

As of June 30, 2015, the Company had regulatory capital that was well in excess of regulatory requirements. The following table details the Company’s actual levels and current regulatory capital requirements as of June 30, 2015.


	Actual					Required for Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
*(dollars in thousands)*	Amount		Ratio			Amount		Ratio			Amount		Ratio

Tier 1 risk-based capital	$	154,098		16.38	%	$	37,621		4.00	%	$	56,431		6.00	%
Common equity tier 1 capital		154,098		16.38			42,324		4.50			61,134		6.50
Total risk-based capital		162,564		17.28			75,242		8.00			94,052		10.00
Tier 1 leverage capital		154,098		12.37			37,621		4.00			47,026		5.00
Tangible capital		154,098		12.37			14,108		1.50			N/A		N/A

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

Liquidity management encompasses our ability to ensure that funds are available to meet the cash flow requirements of depositors and borrowers, while also ensuring adequate cash flow exists to meet the Company’s needs, including operating, strategic and capital. The Company develops its liquidity management strategies as part of its overall asset/liability management process. Our primary sources of funds are from deposits, amortization of loans, loan prepayments and the maturity of loans, investment securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and investment securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. The Company also maintains excess funds in short-term, interest-bearing assets that provide additional liquidity. As of June 30, 2015, cash and cash equivalents totaled $30.2 million. At such date, investment securities available for sale totaled $178.1 million.

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. As of June 30, 2015, certificates of deposit maturing within the next 12 months totaled $150.5 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us. For the three months ended June 30, 2015, the average balance of our outstanding FHLB advances was $19.1 million. As of June 30, 2015, the Company had $19.0 million in total outstanding FHLB advances and had $452.5 million in additional FHLB advances available.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances.

Asset/Liability Management

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations.

Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of June 30, 2015.


Shift in Interest Rates (in bps)	% Change in Projected Net Interest Income
+300		(0.4	)%
+200		(0.1	)
+100		0.1

The actual impact of changes in interest rates will depend on many factors. These factors include the Company’s ability to achieve expected growth in earning assets and maintain a desired mix of earning assets and interest-bearing liabilities, the actual timing of asset and liability repricings, the magnitude of interest rate changes and corresponding movement in interest rate spreads, and the level of success of asset/liability management strategies.

Off-Balance Sheet Activities

To meet the financing needs of its customers, the Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. The Company’s exposure to credit losses from these financial instruments is represented by their contractual amounts.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans as of June 30, 2015 and December 31, 2014.


	Contract Amount
*(dollars in thousands)*	June 30, 2015		December 31, 2014

Standby letters of credit	$	4,912	$	5,405
Available portion of lines of credit		110,026		107,242
Undisbursed portion of loans in process		53,228		54,200
Commitments to originate loans		99,574		96,506

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

The Company is subject to certain claims and litigation arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the financial condition or results of operations of the Company.

RESULTS OF OPERATIONS

During the second quarter of 2015, the Company earned $2.8 million, an increase of $87,000, or 3.2%, compared to the second quarter of 2014. The second quarter of 2015 includes $256,000 of pre-tax merger-related expenses related to the pending acquisition of Louisiana Bancorp. The second quarter of 2014 includes $331,000 of pre-tax

merger related expenses related to the acquisition of Britton & Koontz. Excluding merger-related expenses, net income for the second quarter of 2015 increased 3.4% compared to the second quarter of 2014. Diluted earnings per share for the second quarter of 2015 were $0.41, an increase of $0.01 per share, or 2.5%, compared to the second quarter of 2014. Excluding merger-related expenses, diluted earnings per share for the second quarter of 2015 increased 2.3% compared to the second quarter of 2014.

During the six months ended June 30, 2015, the Company earned $5.7 million, an increase of $1.5 million, or 35.9%, compared to the six months ended June 30, 2014. The first six months of 2015 includes $256,000 of pre-tax merger-related expenses related to the pending acquisition of Louisiana Bancorp. The first six months of 2014 includes $2.3 million of pre-tax merger related expenses related to the acquisition of Britton & Koontz. Excluding merger-related expenses, net income for the six months ended June 30, 2015 increased 3.5% compared to the six months ended June 30, 2014. Diluted earnings per share for the six months ended June 30, 2015 were $0.82, an increase of $0.21, or 34.4%, compared to the six months ended June 30, 2014. Excluding merger-related expenses, diluted earnings per share for the six months ended June 30, 2015 increased 2.4% compared to the six months ended June 30, 2014.

Net Interest Income – Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 4.35% and 4.55% for the three months ended June 30, 2015 and June 30, 2014, respectively, and 4.37% and 4.58% for the six months ended June 30, 2015 and June 30, 2014, respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.47% and 4.64% for the three months ended June 30, 2015 and June 30, 2014, respectively, and 4.49% and 4.68% for the six months ended June 30, 2015 and June 30, 2014, respectively. The decrease in the net interest spread and net interest margin in the 2015 periods related primarily to a decrease in the average yield on loans.

Net interest income totaled $12.8 million for the three months ended June 30, 2015, a decrease of $337,000, or 1.8%, compared to the three months ended June 30, 2014. For the six months ended June 30, 2015, net interest income totaled $25.3 million, an increase of $344,000, or 1.4%, compared to the six months ended June 30, 2014.

Interest income decreased $352,000, or 2.5%, in the second quarter of 2015, compared to the second quarter of 2014. For the six months ended June 30, 2015, interest income increased $387,000, or 1.5%, compared to the six months ended June 30, 2014. Increases in the average balance of loans receivable were offset by decreases of 35 basis points and 32 basis points, respectively, in the average yield on loans during the quarter and six months ended June 30, 2015 from the prior comparable period.

Interest expense decreased $15,000, or 1.8%, from the second quarter of 2015 compared to the second quarter of 2014. For the six months ended June 30, 2015, interest expense increased $42,000, or 2.7%, compared to the six months ended June 30, 2014. During the quarter and six months ended June 30, 2015, the deposit mix continued to reflect a shift to higher levels of core deposits. Core deposits generally have a lower average rate payable than our certificates of deposits. However, given the continuation of low market rates of interest, the effects of the shift in deposit mix was somewhat muted during the quarter and first six months of 2015.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average monthly balances during the indicated periods. Taxable equivalent (“TE”) yields are calculated using a marginal tax rate of 35%.


	Three Months Ended June 30,
	2015							2014
*(dollars in thousands)*	Average Balance		Interest		Average Yield/ Rate ⁽¹⁾			Average Balance		Interest		Average Yield/ Rate⁽¹⁾
Interest-earning assets:
Loans receivable⁽¹⁾	$	915,874	$	12,621		5.48	%	$	898,123	$	12,923		5.72	%
Investment securities (TE)		187,682		902		2.13			191,732		970		2.22
Other interest-earning assets		40,888		65		0.64			40,828		47		0.46

Total interest-earning assets (TE)		1,144,444		13,588		4.75			1,130,683		13,940		4.94

Noninterest-earning assets		104,788							115,617

Total assets	$	1,249,232						$	1,246,300


Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	570,914	$	316		0.22	%	$	493,892	$	283		0.23	%
Certificates of deposit		213,029		384		0.72			241,107		421		0.70

Total interest-bearing deposits		783,943		700		0.36			734,999		704		0.38
Securities sold under repurchase agreement		20,128		19		0.37			20,819		19		0.36
FHLB advances		19,125		104		2.17			96,169		115		0.48

Total interest-bearing liabilities		823,196		823		0.40			851,987		838		0.39

Noninterest-bearing liabilities		267,377							247,506

Total liabilities		1,090,573							1,099,493
Shareholders’ equity		158,659							146,807

Total liabilities and shareholders’ equity	$	1,249,232						$	1,246,300


Net interest-earning assets	$	321,248						$	278,696

Net interest spread (TE)			$	12,765		4.35	%			$	13,102		4.55	%

Net interest margin (TE)						4.47	%						4.64	%


	Six Months Ended June 30,
	2015							2014
*(dollars in thousands)*	Average Balance		Interest		Average Yield/ Rate ⁽¹⁾			Average Balance		Interest		Average Yield/ Rate⁽¹⁾
Interest-earning assets:
Loans receivable⁽¹⁾	$	917,491	$	24,982		5.44	%	$	845,816	$	24,407		5.76	%
Investment securities (TE)		186,007		1,812		2.15			190,874		2,021		2.34
Other interest-earning assets		27,966		99		0.72			35,997		78		0.44

Total interest-earning assets (TE)		1,131,464		26,893		4.78			1,072,687		26,506		4.98

Noninterest-earning assets		106,262							109,643

Total assets	$	1,237,726						$	1,182,330

Interest-bearing liabilities:
Deposits:
Savings, checking and money market	$	547,224	$	607		0.22	%	$	458,552	$	520		0.23	%
Certificates of deposit		216,048		779		0.73			230,167		807		0.71

Total interest-bearing deposits		763,272		1,386		0.37			688,719		1,327		0.39
Securities sold under repurchase agreement		20,212		37		0.37			17,425		35		0.41
FHLB advances		27,283		213		1.56			102,897		231		0.45

Total interest-bearing liabilities		810,767		1,636		0.41			809,041		1,593		0.40

Noninterest-bearing liabilities		269,599							229,221

Total liabilities		1,080,366							1,038,262
Shareholders’ equity		157,360							144,068

Total liabilities and shareholders’ equity	$	1,237,726						$	1,182,330


Net interest-earning assets	$	320,698						$	263,646

Net interest spread (TE)			$	25,257		4.37	%			$	24,913		4.58	%

Net interest margin (TE)						4.49	%						4.68	%

⁽¹⁾	Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. Acquired loans were recorded at fair value upon acquisition and accrete interest income over the remaining lives of the respective loans.

(The following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in average volume between periods times prior year rate), (ii) changes attributable to rate (changes in average rate between periods times prior year volume) and (iii) total increase (decrease).


	For the Three Months Ended June 30, 2015 Compared to 2014 Change Attributable To									For the Six Months Ended June 30, 2015 Compared to 2014 Change Attributable To
*(dollars in thousands)*	Rate			Volume			Total Increase (Decrease)			Rate			Volume			Total Increase (Decrease)
Interest income:
Loans receivable	$	(373	)	$	71		$	(302	)	$	(1,044	)	$	1,619		$	575
Investment securities (TE)		(48	)		(20	)		(68	)		(165	)		(44	)		(209	)
Other interest-earning assets		18			—			18			44			(23	)		21

Total interest income		(403	)		51			(352	)		(1,165	)		1,552			387


Interest expense:
Savings, checking and money market accounts		(12	)		45			33			(12	)		99			87
Certificates of deposit		13			(50	)		(37	)		20			(48	)		(28	)
Securities sold under repurchase agreement		1			(1	)		—			(4	)		6			2
FHLB advances		(27	)		16			(11	)		(67	)		49			(18	)

Total interest expense		(25	)		10			(15	)		(63	)		106			43

Increase (decrease) in net interest income	$	(378	)	$	41		$	(337	)	$	(1,102	)	$	1,446		$	344

Provision for Loan Losses – For the quarter ended June 30, 2015, the Company recorded a provision for loan losses of $294,000, or 63.7% lower than the $811,000 recorded for the same period in 2014. For the six months ended June 30, 2015, the provision for loan losses totaled $833,000, a decrease of $123,000, or 12.9%, compared to the six months ended June 30, 2014. Net loan charge-offs amounted to $100,000 and $127,000, respectively, during the quarter and six-months ended June 30, 2015.

As of June 30, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.92%, compared to 0.85% at December 31, 2014 and June 30, 2014. Our level of total non-performing assets and troubled debt restructurings showed continued improvements during the quarter and six months ended June 30, 2015. Our ratio of non-performing loans to total assets was 0.98% at June 30, 2015, compared to 1.91% at December 31, 2014. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.09% at June 30, 2015, compared to 1.04% and 1.10% at December 31, 2014 and June 30, 2014, respectively.

Noninterest Income – The Company’s noninterest income was $2.0 million for the three months ended June 30, 2015, $213,000, or 9.5%, lower than the $2.3 million earned for the same period in 2014. Noninterest income was $4.1 million for the six months ended June 30, 2015, $209,000, or 5.4%, higher than the $3.9 million earned for the same period of 2014.

The decrease in noninterest income in the second quarter of 2015 compared to the second quarter of 2014 resulted primarily from decreases in gains on the sale of loans (down $171,000) and service fees and charges (down $22,000) as the result of lower activity during the quarter.

The increase in noninterest income for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 resulted primarily from increases in bank card fees (up $178,000) and service fees and charges (up $74,000).

Noninterest Expense – The Company’s noninterest expense was $10.2 million for the three months ended June 30, 2015, $142,000, or 1.4%, lower than the $10.4 million recorded for the same period in 2014. Noninterest expense was $19.9 million for the six months ended June 30, 2015, $1.7 million, or 7.8% lower than the $21.6 million for the same period of 2014. Noninterest expense includes merger expenses related to the pending acquisition of Louisiana Bancorp of $256,000 for the three and six months ended June, 30, 2015 and Britton & Koontz of $331,000 and $2.3 million for the three and six months ended June 30, 2014, respectively. Excluding pre-tax merger-related expenses, noninterest expense decreased $67,000, or 0.7%, for the three months ended June 30, 2015 compared to the three months ended June 30, 2014. Excluding merger-related expenses, noninterest expense increased $350,000, or 1.8%, for the six months ended June 30, 2015 compared to the six months ended June 30, 2014.

Income Taxes – For the quarters ended June 30, 2015 and June 30, 2014, the Company incurred income tax expense of $1.4 million. The Company’s effective tax rate was 33.7% and 34.0% during the second quarters of 2015 and 2014, respectively. For the six months ended June 30, 2015 and June 30, 2014, the Company incurred income tax expense of $2.9 million and $2.1 million, respectively. The Company’s effective tax rate amounted to 33.8% and 32.9% during the six months ended June 30, 2015 and June 30, 2014, respectively. Differences between the effective tax rate and the statutory tax rate primarily relate to variances in items that are non-taxable or non-deductible (e.g., state tax, tax-exempt income, merger-related expenses, etc.).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are presented in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2014, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/ Liability Management and Market Risk”. Additional information at June 30, 2015 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Asset/Liability Management”.

Item 4. Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the first quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for December 31, 2014 filed with the Securities and Exchange Commission.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds.

The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plan and are set forth in the following table.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs⁽¹⁾
April 1 - April 30, 2015		13,000	$	21.65		13,000		84,250
May 1 – May 31, 2015		36,200		22.27		32,854		71,250
June 1 – June 30, 2015		—		—		—		38,396

Total		49,200	$	22.11		45,854		38,396

⁽¹⁾	On June 7, 2013, the Company announced the commencement of a new stock repurchase program. Under the plan, the Company can repurchase up to 370,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Financial Statement Schedules.


No.		Description

31.1		Rule 13(a)-14(a) Certification of the Chief Executive Officer

31.2		Rule 13(a)-14(a) Certification of the Chief Financial Officer

32.0		Section 1350 Certification

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		HOME BANCORP, INC.

August 7, 2015	By:	/s/ John W. Bordelon
		John W. Bordelon
		President, Chief Executive Officer and Director

August 7, 2015	By:	/s/ Joseph B. Zanco
		Joseph B. Zanco
		Executive Vice President and Chief Financial Officer